ICL Group Ltd

Ladies and gentlemen, thank you for standing by and welcome to the ICL Analyst Conference Call. Our presentation today will be followed by a question and answer session, at which time, if you wish to ask a question, you'll need to raise your hand using your mobile or desktop application and wait for your name to be announced. I must advise you that this call is being recorded today. I would like to hand over the call to our first speaker today, Peggy Riley-Tharp, Vice President of Global Investor Relations. Please go ahead.

Thank you. Hello, everyone. I'm Peggy Riley-Tharp, Vice President of Global Investor Relations. I'd like to welcome you and thank you for joining us today for our quarterly earnings call. The event is being webcast live on our website at icl-group.com. Earlier today, we filed our reports with the securities authorities and the stock exchanges in the U.S. and in Israel. Those reports, as well as the press release, are available on our website. There will be a replay of the webcast available after the meeting, and a transcript will be available shortly thereafter. The presentation, which will be reviewed today, was also filed with the securities authorities and is available on our website. Please be sure to review the disclaimer on slide 2. Our comments today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are not guarantees of future performance. The company undertakes no obligation to update any financial information discussed on this call at any time. We will begin with a presentation by our CEO, Mr. Raviv Zoller, followed by Mr. Aviram Lahav, our CFO. Following the presentation, we will open the line for the Q&A session. Raviv, please.

Thanks, Peggy, and welcome, everyone. I'd like to begin by recognizing all the expressions of concern we've received since October 7th. In addition to hearing from you, our investors, we've also heard from our customers, suppliers, competitors, and so many others. These heartfelt messages are greatly appreciated as we navigate the current situation in Israel. While I will provide more detail later in this call, I would like to assure you that while there are some challenges, our operations in Israel continue without significant disruption. For the third quarter, you can see a quick overview of results on slide three. Sales of $1.86 billion were flat sequentially, as we saw the beginning signs of stabilization in many of our end markets. Adjusted EBITDA of $346 million was down versus the prior record year, as expected. During the quarter, we completed significant destocking efforts, which in part helped contribute to our strong cash generation. For the third quarter, we generated more than $400 million of operating cash flow and $217 million of free cash flow. We delivered 11 cents of earnings per share and distributed nearly $70 million in dividends to our shareholders as part of our long-standing policy to pay out 50% of adjusted net income each quarter. While I will discuss each of our businesses in more detail, I would like to call out our strong put-out deliveries in the third quarter, and we are now sold out for the year. For our phosphate specialties, we had another solid quarter and are in the process of board approvals for the first offtake agreement for our new battery materials facility, which is now under construction in St. Louis. I would ask you to now turn to slide four and a three-year look at our key financial matrix. While sales were down year over year as expected, they were up versus 2021 on both a quarter and year-to-date basis. Adjusted EBITDA was down for the quarter due to lower pricing across all of our businesses. However, we saw some increases in volumes. During the quarter, we benefited from better raw material prices and transportation rates and saving efficiencies overall. However, this was obviously not enough to offset the decline in prices from 2022. On slide five, you can see our specialty sales. While 2022 was an exceptional year, you can see that our year-to-date 2023 specialty sales remain ahead of our more normalized 2021 results. Overall specialty sales were higher versus the first nine months of 2021. Similarly, while down year-over-year, our adjusted EPS for the first nine months of the year exceeded the same timeframe in 2021. In the center of this slide, you can see our third quarter operating cash flow, which was up versus the second quarter of this year, and our free cash flow, which was roughly flat for the same timeframe. When compared to 2021, you can see we experienced significant growth in both operating and free cash flow on both the quarterly and year-to-date basis. I would now like to begin our segment review with industrial products on slide six. Third quarter sales were $267 million, while EBITDA was $42 million. As we indicated in June, the recovery in demand for flame retardants has been much slower than predicted. During the third quarter, bromine prices hit bottom, and we also completed some additional destocking efforts. Demand is now slowly picking up in the fourth quarter, and our unique cost position and focus on long-term customer partnerships is allowing us to gain market share. Demand for clear buying fluids has remained strong as oil drilling activity has increased. Our specialty minerals business unit targeting food, pharma, and other end markets performed in accordance with our expectations in the third quarter. Overall, our industrial products division started gaining market share toward the end of the quarter. As the leading global producer of bromine, we have been able to leverage our efficient cost position and remain profitable, despite unique challenges which may have significant impact on smaller manufacturers. As I said last quarter, our industrial products business remains on track for the long term, and we do not expect recent developments, which are predominantly external, to have a material impact on the execution of our five-year plan. We are beginning to see demand recovery becoming visible in some end markets and expect to gain benefits from cost savings initiatives launched in recent months. Turning to slide seven in our phosphate solutions division, where we reported strong results relative to current global market conditions. Third quarter sales of $620 million were up sequentially, while EBITDA came in at $117 million and was substantially impacted by lower prices in the market, mainly on the commodity side of the business. For the quarter, our phosphate specialties business demonstrated resilience and represented approximately 60% of phosphate solutions sales and nearly 50% of EBITDA. Specialties EBITDA margin of 15% is in line with the third quarter of 2021. Free cash flow was very favorable in the third quarter as we improved our working capital position for phosphate solutions. We also benefited from low raw material and transportation costs during the quarter as we leveraged our supply chain capabilities. Sales and volumes varied by end market and region, and our industrial specialty showed strength in Asia Pacific due to resurging demand for battery materials. For our specialty food phosphates, we experienced strong pricing in North America, and overall, food prices continued to be elevated on a global basis. Europe remains challenging in general, as it has for the past four quarters, with increased competition from Chinese suppliers, and we continue to defend our market share where necessary in this region. Chinese producers are also becoming more apparent in South America as China continues to export its excess supply. In both Europe and South America, we implemented targeted efficiency efforts to optimize our logistics, raw material costs, and energy costs. For our battery materials expansion in St. Louis, we are on track for this facility to be operational in late 2025. While there has been a lot of noise in the news about electric vehicles lately, we remain excited about the long-term potential of the overall energy storage and electric vehicle industries. We have always expected this to be a gradual ramp up and are pleased to be the first mover for essential battery materials produced and sourced in the United States. As I mentioned earlier, we soon expect to announce our first long-term strategic partnership, which will help in creating the next generation of battery and energy storage solutions in North America. We are also seeing growing traction and engagement from additional potential offtake partners. On slide 8, you will see our put-ash results, and note our supply is sold out for the remainder of 2023. For the third quarter, sales were $526 million as quantities increased to approximately 1.28 million metric tons with higher volumes to Europe, Brazil, and China. EBITDA came in at $164 million and prices began to stabilize. Our POTUS CIF price of $342 was down versus the same quarter in 22, but up slightly versus the third quarter of 2021. In Spain, our production continued to face geological constraints in the third quarter as we continue to transition away from a lower grade mineral geography, which will carry on over the next few months. This shift is in concert with other efficiency efforts there as we strive to increase outputs and decrease costs in Spain. We also continue to pursue cost savings across our entire potash portfolio and are on track with our plans. Turning to slide nine and our growing solutions business, which delivered sequential improvement in both sales and EBITDA in the third quarter. Sales were $550 million while EBITDA was $37 million. During the quarter, significantly stocking was almost fully completed, driving higher quantities across the division and contributed in part to all time record quarterly cashflow and some gains in market share. In total, Growing Solutions has reduced its inventory by approximately $140 million since the beginning of the year, which is in line with our plans. Savings and efficiencies efforts for 2023 also remain on track with improvement in the third quarter. Our destocking efforts also helped our Brazilian business, where we saw record sales with strong volumes. We gained market share during the quarter and also broke an all-time sales record in our foliar business as we remain focused on higher profit products. For other key geographies, we see demand returning in Europe, especially for our fertilizer plus products, and the pickup in demand is also becoming visible in China as well. I would now like to draw your attention to slide 10 and a review of the key areas where we remain focused. Efficiencies have been a theme throughout 2023, and each of the divisions enhanced their efforts in the third quarter. Our industrial products team has leveraged its efficient cost position during a challenging industry recovery, while phosphate solutions has focused on optimizing its logistics and raw material efficiencies, along with its energy usage on a global basis. In Putash, we have benefited from ongoing efficiency efforts at the Dead Sea and are looking for advances in Spain to materialize. For growing solutions, efforts to efficiently destock high-priced inventory help drive their third-quarter cash flow and also leave the business well-positioned for additional growth as demand shows signs of beginning to improve. In total, all of these efforts help drive a strong total operating cash flow of $1.18 billion a year to date, and Aviram will discuss our efficiency efforts in more detail. Growing our specialties product portfolio remains a key long-term priority. Our investment in battery materials for energy storage and electric vehicles will help position the phosphate specialties business for the future and further diversify in market exposure. Our industrial products business remains the leader in the global bromine market, which will continue to see long-term growth as electronics become even more firmly embedded in our AI-driven future. For growing solutions, we're excited about expanding our reach in growing markets, such as Brazil and India, and as we continue to develop new, more sustainable products for the future of agriculture. Our innovation focus on sustainability has been rewarded by a robust, high-value new product portfolio and improved ties with third parties, as well as improved ratings, including our recent upgrade by MSCI to Triple V. We expect to continue to improve our various rankings. In terms of M&A, new opportunities have recently surfaced, and we've also recruited Uri Perlman to join our management team. Uri joins ICL as an executive vice president and as our chief business development officer. He will help accelerate our business development, M&A, and strategic partnership efforts. Uri has an impressive track record in business development, successfully leading growth processes in several companies, and we're very excited to have him join the team. Finally, I would like to provide an update on the situation in Israel. I'm deeply saddened to share that we lost several members of our ICL family due to the tragic events that took place on October 7th and in the aftermath. Our main focus has been on providing our employees impacted by the hostilities with their most immediate needs. At the same time, we've been working to keep our employees safe, both at work and home and continue to adopt all the necessary measures, both at the sites and during transport to minimize any potential risks. From a business standpoint, we have faced various operational challenges caused by the war, but have succeeded in minimizing disruption and maintaining good production levels, thus meeting all of our customer commitments. As of last week, approximately 600 of our more than 4,500 Israeli employees had been called to reserve duty, a situation that has required some adjustments, which have been working effectively. As many of you have inquired, transportation of goods has become a unique challenge, but our teams have been managing quite well. We are doing our best to get back to our normal business routine and, as you can imagine, we are monitoring the situation on a constant basis. We will continue to make all the necessary decisions and take the required actions to guarantee our business continuity while keeping our employees and communities safe. ICL has been actively reaching out to the impacted communities and offering them support, both material and emotional. And I cannot even put into words how proud I am of our employees who have been volunteering night and day to support the people and communities affected by the tragedy Israel has faced. While I always thank the entire ICL family of employees all around the world for their hard work and contributions each quarter, this is an especially heartfelt sentiment today. The tenacity of the team in Israel has been inspiring and the unwavering support of our global colleagues has been heartwarming. We are resilient and we will prevail as before. Again, we thoroughly appreciate all of your kind words and prayers and hope the situation will be improved by the time we report our fourth quarter results. And with that, I would now like to turn the call over to Aviv.